Will Student Loan Forgiveness Impact the Economy in the Same Way as Stimulus Relief?
Stimulus checks and other types of pandemic-era relief greatly impacted the economy. Congress pumped trillions of dollars into the economy, helping Americans cover some of their basic living expenses and pay down debt. The same theory should apply to the Biden administration’s student loan forgiveness plan. Some people will have their debt wiped out, while others will benefit from lower monthly student loan payments, reports Due.com.
Student Loans: Court Allows $6 Billion in Forgiveness Funds To Proceed for 200,000 Borrowers
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After its announcement last August, the Supreme Court has blocked Biden’s plan to forgive up to $20,000 in federal student loan debt. Until a final decision is made, everyone with student loan debt will remain in limbo.
If the plan passes, the White House estimates that the program will provide aid to over 43 million borrowers and an estimated 20 million borrowers will see their remaining debt balance canceled. Nearly 90% of debt cancellation benefits will go to borrowers earning under $75,000 per year.
Due.com noted that Biden’s plan includes provisions to cap monthly payments for undergrad loans to 5% of the borrower’s discretionary income. According to the White House, this could lower the average annual student loan payment by over $1,000 for current and future borrowers.
College debt has had a detrimental impact on graduates for years. Student loan borrowers have delayed homeownership, difficulties when applying for credit and less money to spend, Due.com added. Less money going toward paying off student loans could mean more money to spend and more money going into the economy.
Assistant Professor Christina Patterson of the University of Chicago’s Booth School of Business wrote in a working paper that to get the maximum impact in boosting the economy, lawmakers should give the money to the people who will spend the most of it instead of putting it away in savings.
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